Happiness puzzles Angus Deaton and Arthur Stone

13 Pages·2012·0.08 MB·English

by  Angus Deaton

Happiness puzzles
Angus Deaton and Arthur Stone
December 29th, 2012
Deaton: Princeton University, 361 Wallace Hall. Princeton, NJ 08544 ([email protected]). Stone: Stony Brook
University, Putnam Hall, South Campus, Stony Brook, NY 11794-8790 ([email protected]).
Acknowledgements. We acknowledge support from National Institute on Aging through the National Bureau of
Economic Research, Grants 5R01AG040629–02 and P01 AG05842–14, as well from the Gallup Organization. The
authors are consulting Senior Scientists with Gallup.
Economists, as well as psychologists and philosophers, have become increasingly interested in
self-reported measures of wellbeing, what they mean, and what they might be used for, especial-
ly in policymaking. The interest in wellbeing measures parallels a renewed awareness of the lim-
itations of standard measures of GDP (and allied measures), as well as an interest in redirecting
measurement away from GDP in an era when growth rates are diminishing across much of the
rich world. Various self-reported wellbeing (SWB) measures have been used to provide new in-
sights—for example that unemployment has effects well beyond the loss of income—and to cap-
ture a number of difficult-to-measure phenomena, such as the trade-off between inflation and
unemployment, the costs of air pollution, or the values attached to environmental amenities.
In spite of those successes, the measures neither fully accepted nor fully understood. Tra-
ditional economics has been skeptical of measures whose content is unclear, is largely up to the
respondent, and is sometimes deeply affected by the wording of the questions or by the context
in which they are put. Although cognitive testing in the laboratory can provide insights about
how people understand well-being questions, more often the interpretation is deduced by analyz-
ing the correlates of the answers ex post. This poses a problem: we cannot use a correlation be-
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tween a SWB measure and a variable X both to validate the measure and to claim that we have
demonstrated the welfare consequences of X. One symptom is what we refer to as the “happiness
fork:” that results that conform to standard welfare analysis (left fork)—that income, education
and health are linked to SWB—are taken as support for SWB measures, while results that do not
so conform (right fork)—that unemployment is much worse than the loss of income would im-
ply, or that people hate to commute—are also taken as supportive and indeed demonstrative of
the superiority of the SWB measures. Such interpretations are unlikely to persuade skeptics.
Rather than argue for one fork or the other, this paper looks at several SWB findings that
are, on the face of it, internally contradictory, or that appear to contradict well-based if conven-
tional judgments about what is or is not good for people. Those who see happiness as the only
good, and who believe that SWB measures capture it, simply see these conventional judgments
as mistaken. For those of us not so committed, we are likely to modify our interpretation of the
measures, or the place that happiness plays in wellbeing, or both. From whatever perspective,
internal contradictions need to be worked out, a process that is likely to be productive. Maintain
a distinction throughout between evaluative and hedonic wellbeing.
I. A Relative Income and Wellbeing Puzzle
There is a large literature, using data from the US, Canada, Europe, and developing countries in
which researchers have regressed a wellbeing measure on both individual income and average
income over some local area that is taken to include the people to whom the individual compares
him or herself. In these regressions, individual income invariably has a positive effect, while lo-
cal income has a negative effect, sometimes equal and opposite to the positive effect of own in-
come. The United Nations World Happiness Report (pp. 60–66) documents these general find-
ings summarizing dozens of studies using panel and cross-sectional data, only a few of which are
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in contradiction. If these findings are correct, they imply that the cross-sectional response of
SWB to income overstates a long-run time-series response in which incomes rise together, and
that economic growth may fail to increase in SWB, as long claimed by Richard Easterlin. They
also imply that individual incomes cause negative externalities to others, which could be used to
justify Pigovian income taxes to discourage people from working hard and so harming others.
Our first puzzle is that, in our very large data sets, we can find no evidence for this appar-
ently well-established conclusion. We investigate using two data sets, from the US, the Gallup
Healthways Wellbeing Index survey, which has surveyed 1,000 randomly selected Americans
every day since January 2008, and from the world as a whole, the Gallup World Poll, which has
asked similar questions of 1,000 or more people in each of 160 countries beginning in 2006.
We look at two different ways of measuring wellbeing, an evaluative measure, the Cantril
ladder, and a hedonic measure, daily happiness. The former invites respondents to rate their lives
on a “ladder” with eleven steps, marked from 0, which represents the worst possible life for you,
to 10, which represents the best possible life for you. Answering such a question requires the re-
spondent to think about their life and interpret the question. We also look at a dichotomous
measure in response to the question “Did you experience a lot of happiness yesterday?” This is
one of a number of hedonic questions, which should be distinguished from the evaluative ques-
tion in the ladder. Hedonic questions do not require the cognitive effort required to answer eval-
uative questions, they refer to different aspects of experience, and often have different correlates.
For example, hedonic measures are uncorrelated with education, vary over the days of the week,
improve with age, and respond to income only up to a threshold. Evaluative measures remain
correlated with income even at high levels of income, are strongly correlated with education, are
often U-shaped in age, and do not vary over the days of the week, Stone et al (2010), Kahneman
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and Deaton (2010). The important distinction between evaluative and hedonic wellbeing renders
unhelpful the portmanteau use of the term “happiness.”
We explore the relationship between SWB and income at various levels of aggregation.
If, for example, an individual’s relative income comparators live in the same county, the effects
of income on SWB should be higher in the micro data than when we look at effects of county
average income on county average wellbeing. More formally, if an individual’s outcome is posi-
tively and linearly related to individual log income and negatively to county average log income,
we will obtain the coefficient on individual income from a regression of the outcome on log in-
come and a county fixed effect. When we run a regression on averaged county-level data, the
coefficient on county average log income will be the difference between the individual and group
coefficients, potentially zero if only relative income matters.
The results at various levels of aggregation—persons, zip codes, counties, congressional
districts, cities (Metropolitan Statistical Areas), and states—are shown in the top panel of Table
1. Consider first the ladder, our measure of evaluative wellbeing. In the micro data, the coeffi-
cient of log income on the ladder measure is 0.51; the regression controls for age groups, sex,
and race, plus zipcode fixed effects. For all aggregations but zip codes, the coefficients are lower
than in the micro data, and (arguably) decline modestly as the level of aggregation increases,
though the state level coefficient is higher than the MSA level coefficient. If we interpret the
coefficients as the difference in the effects of individual and average incomes, the maximum
scope for the latter is quite small, less than a fifth of the effect of individual (log) income. There
is no evidence at all for the idea that the positive effects of income on life evaluation are com-
pletely offset by negative effects of average income at any of the geographical areas considered
here. Indeed, the zip code level analysis throws up an effect that is higher than in the micro re-
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gression. One explanation is that living with rich people provides public goods—parks, schools,
libraries, etc.—that enhance evaluative wellbeing. Another possibility is that life evaluation de-
pends not on current but permanent income, and that the latter is better proxied by the zipcode
average than by own income. There is no evidence that average zipcode income has a depressing
effect on evaluative wellbeing and yet it is surely here, among people that one is most likely to
know, that relative income theory has the greatest plausibility.
Table 1: Self-reported well-being and relative income
Ladder Happiness
USA β s.e. # obs β s.e. # obs

Person level data 0.508 (0.002) 1,083,971 0.043 (0.0004) 1,084,890
Averages by:
Zipcode 0.627 (0.011) 7,735 0.037 (0.002) 7,735
County 0.507 (0.018) 2,353 0.031 (0.003) 2,353
Congress District 0.491 (0.032) 470 0.023 (0.004) 470
MSA 0.401 (0.039) 365 0.012 (0.005) 365
State 0.419 (0.136) 51 –0.010 (0.015) 51
World
Person level data 0.554 (0.003) 639,431 0.054 (0.0008) 504,543
Country averages 0.675 (0.078) 160 0.034 (0.034) 160
Notes: Regressions have either the ladder or happiness as the dependent variable, and we report the coefficient on
log income. Regressions include controls for sex, age groups, and white/non-white (US only). Person level US re-
gressions contain zipcode dummies, and person level world regressions contain country dummies. Counties and zip-
codes are excluded if there are fewer than 50 people in the sample. The happiness question was not asked in all
rounds of the World Poll, which accounts for the fewer number of observations in the world data.

The World results for the ladder are uncannily like the US results. The person level coef-
ficient is 0.55, as opposed to 0.51 in the US, and the cross-country effect is 0.68, exactly what we
would suppose if there are positive spillovers from having rich people nearby, and exactly the
opposite of what would happen if rich people nearby create a negative externality.
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The results for our hedonic measure, daily happiness, conform more closely to the predic-
tions of the relative income story. The coefficient on log income of 0.043 (remember the scale
for happy is 0 to 1, not 0 to 11 as for the ladder), and declines steadily with the level of aggrega-
tion becoming negative and insignificant at the level of states. Another story is that hedonic hap-
piness, unlike life evaluation, is more closely related to transitory than to permanent income.
Aggregation over larger units annihilates an increasingly large share of transitory income and
drives down the coefficient on income. Either explanation is consistent with the evidence, as well
as with the sharp decline in the effects of income on daily happiness in the global data as we
move from within to across countries. Graphical examination of the global data shows that the
cross-country coefficient is as high as it is because of the presence of a few very unhappy coun-
tries at the bottom of the world income distribution together with one very rich, reportedly very
happy country (the US). Over a broad range of per capita GDP levels, aggregate happiness is
unrelated to aggregate income; the countries of the former Soviet Union are among the unhappi-
est in the world, unhappier than either Congo, Benin, or Chad, for example, and Italy and Den-
mark are unhappier than Mozambique, Sudan, and Rwanda. These results cast serious doubt on
using (the hedonic version of) happiness to provide an overall assessment of human wellbeing.
While it makes sense for SWB measures to paint a different picture than GDP, it is hard to credit
a measure that says that Denmark is worse off than Rwanda; being happy is a good thing, but
other things surely outweigh it in any credible overall assessment of life. Life evaluation
measures, such as the ladder measure analyzed here, do not share this particular problem.
The reconciliation of the results in Table 1 with the large number of contradictory results
in the literature is beyond the scope of this short paper. More substantively, the standard insights
from permanent income theory seem promising for interpreting the wellbeing data, and offer an
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alternative to the relative income theory, just as was the case in consumption theory half a centu-
ry ago. Yet our results should highlight that the relative income story is inconsistent with at least
these data, and cannot be used to support the view that income generates externalities for others,
or that universal growth will leave wellbeing unaffected.
II. Is religion good for you? An aggregation puzzle
Many previous studies have found that more religious individuals have higher wellbeing; our
second puzzle is that this finding does not carry through to comparison of more or less religious
places. Idler and Kasl (1997) discuss the interpretative, regulative, and integrative functions of
religion. Religion provides meaning to life, especially in times of difficulty, religion regulates
conduct and promotes behaviors that are good for health and wellbeing, but which might be dif-
ficult to adhere to on one’s own, and religion may provide direct help, in the form of healthcare
or education, particularly under circumstances where provision by the state is absent or limited.
Religion provides social capital through churchgoing, and Chaeyoon Lim and Robert Putnam
(2010) have argued that friends from church promote happiness more effectively than friends in
general.
We use the Gallup data to examine the correlates of “religiosity,” defined by the yes/no
answer to the question of whether religion is an important part of your daily life. In the US, 66
percent of people answer this question positively; across US states, the fraction varies from 41
percent in Vermont to 87 percent in Mississippi. Across the world, 65 percent of people answer
positively, with a range from less than 20 percent in Sweden, China, Estonia and Denmark, to
more than 98 percent in Niger, Mauritania, Egypt, Malawi, Sri Lanka, Bangladesh and Somalia.
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The US, although close to the world average overall, is much more religious than most other rich
countries.
Table 2: Self-reported well-being and religiosity
Ladder Happiness
World: within β s.e. # obs β s.e. # obs
countries
No income control 0.039 (0.006) 796,121 0.044 (0.002) 560,396
Log income control 0.073 (0.007) 595,630 0.049 (0.002) 469,846
Between countries
No income control –0.550 (0.428) 159 0.125 (0.072) 152
Income control (1) 0.264 (0.329) 159 0.186 (0.071) 152
Income control (2) –0.025 (0.334) 155 0.165 (0.071) 149
USA
Person level data 0.248 (0.004) 1,388,404 0.041 (0.0006) 1,391,165
Log income control 0.263 (0.004) 1,080,485 0.042 (0.0007) 1,081,420
State averages –0.059 (0.202) 51 0.022 (0.024) 51
Log income control 0.368 (0.188) 51 0.062 (0.025) 51
Notes: Regressions have either the ladder or happiness as the dependent variable, and we report the coefficient on
religiosity. Regressions include controls for sex, age groups, and white/non-white (US only). Micro US regressions
contain zipcode dummies, person level world regressions contain country dummies. In the bottom panel we show
results for state averages: similar results were obtained for other levels of aggregation, with small or even negative
effects without income controls, and positive, often significant, effects with income controls. Income control (1)
uses the average of log income from the survey, while income control (2) uses the log of real chained GDP per capi-
ta in 2010 from the Penn World Table, Version 7.1.
Table 2 documents the evaluative and hedonic advantage for individuals who report that
they are religious. Again, we begin with the ladder. The first rows of the table show that, within
countries, there is a modest advantage in life evaluation among those who are more religious—
the effect is equivalent to less than a ten percent increase in income, though about 50 percent in
the US—and that the effect is larger when income is controlled; within countries income is nega-
tively correlated with religiosity. Looking across countries, the most religious countries have
lower ladder values, which comes entirely from the fact that poorer countries are more religious
and that income is strongly positively correlated with the ladder. Once log income is controlled
for, there is an insignificant positive partial correlation between religion and the ladder if we use
the average of log income from the survey itself, or an insignificant negative partial correlation if
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we use log per capita GDP from the Penn World Table 7.1. In the US, religious states have lower
average ladder values than non-religious states. Once again, the more religious states are sharply
poorer, and once income is controlled, the positive effect of religiosity returns.
The sharpest puzzle here is why the religiosity advantage for individuals does not carry
through to the country averages. There is something associated with religion in aggregate that
offsets the effects of religiosity on individuals; this could be religion itself—if religion favors the
in-group at the expense of the out-group—but there are many other possibilities, as we shall see.
This puzzle parallels a similar puzzle with health; within countries, poor health is strongly nega-
tively correlated with life evaluation yet, conditional on income, life expectancy adds nothing to
the prediction of country average ladder scores, see Deaton (2008).
For daily happiness, these paradoxes do not exist. Religious people experience more hap-
piness each day, and religious countries also experience more happiness on average. Religious
Americans are happier, and religious states in America are happier. Controlling for income
makes little difference to these results. In this case, judged by the correlations, daily happiness
does better than evaluative wellbeing, but without understanding why, we have no basis for
choosing between them.
The individual versus aggregate religion puzzle appears in another form in the American
data. Religious people may have higher life evaluation and experience more daily happiness, and
there is a large literature demonstrating that they are healthier, but more religious states experi-
ence more social pathologies, including crime, smoking, divorce rates, teen birth rates, venereal
disease, and poor health, see David Myers (2012). Figure 1 plots state level data on age-adjusted
murder rates (technically, deaths from assault, from the Centers for Disease Control for years
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2008–9) against the average religiosity data from the Gallup poll (excluding Washington, DC, as
well as North Dakota where the two year murder rate is too small to be reliably estimated.) Note
that murders are rare, only 5.6 per 100,000 people per year, and that while the correlation is high,
0.39, it is far from perfect, and there are very religious states (e.g. Utah) that enjoy the lowest
murder rates. The correlation in the Figure is even stronger for all-cause mortality rates (0.72),
for mortality from cardiovascular disease (0.68), and is about the same as murder for cancer mor-
tality (0.38). The citizens of more religious states are generally unhealthier, not just more at risk
of dying from assault.
With fifty observations, it is easy
enough to find spurious correlations, so
we have replicated the results using
county level data, including all coun-
ties for which the Gallup data have at
least 50 observations; we have 3,094
matched counties with both Gallup and
CDC data for the years 2008 and 2009.
Figure 1: Religiosity and deaths by assault, 2008-09
A county-level regression of the age-
adjusted all-cause mortality rate on religiosity has a coefficient of 4.36 and a t-value of 24. A
move from San Francisco County, California, where 31 percent of respondents said that religion
was important in their daily lives, to one of the several counties in Georgia, Kansas, or Texas,
where everyone said so, would increase the age-adjusted mortality rate by 3.01 deaths per 100,
compared with a US average of 8.31, with a standard deviation over counties of only 1.45. The
introduction of obvious possible confounders, like log income, fraction white, and even average
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